Reliance Industries Ltd – Q2 FY2019-20 Results Update

Reliance Industries Ltd – Stock Analysis

Introduction

In this article, we are going to discuss Reliance Industries Ltd Q2 FY2019-20 Results Update. Let us analyze EBITDA Mix (Earnings Before Interest Tax Depreciation and Amortization) of the company for Q2 FY20 in detail here. What does this percentage contribution from different business verticals tells about the future growth prospectus of the company.

Reliance Industries Ltd (RIL) – Q2 FY2019-20 Results Update

Business Verticals of RIL

• We can see that Reliance Industries Ltd is mostly engaged in the capital intensive businesses like refinery, petrochemical, oil and gas, digital services infrastructure, retail etc.
• Such kind of businesses require to infuse a lot of working capital and higher investments.
• For example –
  • To build refining, petrochemical plants set up as well as operations
  • To set up a big Infrastructure for the Jio- digital services as well as Reliance Retail outlets

Reliance Industries Ltd – Q2 FY2019-20 Results Analysis

Lets analyze the consolidated Q2 FY2019-20 results of the company.

Revenue

• The consolidated revenue of the company is Rs.1,63,854 Cr. It is increased by 4.8% YoY but decreased on QoQ basis by 5.3%
• Key Drivers of Revenue :
  1. Robust revenue growth in consumer business- Jio (43%) & Retail (27%) amidst economic slowdown
  2. Decrease in Refining and Petrochemicals segment revenue with 17.7% fall in Brent crude price
  3. Lower Exports in Q2 FY20 (12% YoY fall) due to lower price realization in refining & petrochemical products and due to emphasis on domestic placement. Exports were Rs.53,161 Cr in Q2 FY20 and Rs.60,460 Cr in Q2 FY19.

EBITDA

• The consolidated EBITDA for Q2 FY20 is almost Rs.23,169 Cr, increased by 7.1% YoY and 5.3% on QoQ basis.
• Key Drivers of EBITDA :
  1. Strong growth in consumer EBITDA (53% YoY)
     • Jio EBITDA – 48% YoY
     • Retail EBITDA – 67% YoY
  2. By continuous capture of growth opportunities in consumer businesses
     • Retail added 337 stores in Q2 (1755 in last 12 months)
     • Jio added 23.9 million subscribers in Q2 (103 million subscribers in last 12 months)
  3. Significant decline in EBITDA of Refining and Petrochemical business YoY due to
     • Crude volatility : US-China Trade tensions, Weak global trade
     • Supply disruptions : Saudi attack

Net Profit

• For Q2 FY2019-20, net profit ie profit after tax (PAT) is Rs.11,262 Cr, increased by 18.3% YoY and 11.5% QoQ.
• The corporate tax rate cut by government helped the company to pay the taxes at the reduced rate of 25% in Q2 FY20 from earlier rate of around 29% in earlier quarters.
• The net effect was the rise in effective net profit of the company in Q2 FY20. It also contributed to the improved EPS to 18.6 in Q2 FY20 from 17.1 in Q1 FY20 and 16.1 in Q2 FY19.

EBITDA Mix Analysis

• In such kind of capital intensive businesses as mentioned above, EBITDA (Earnings Before Interest Tax Depreciation and Amortization) of the company is a very crucial parameter to consider.
• Thus, we should analyze EBITDA Mix of the company in the Q2 FY20 results.

• In Q2 FY19 the EBITDA contribution was majorly from Refining, Petrochemical and Oil and Gas business verticals of the company (73.8% ). However, in Q2 FY20, these traditional business verticals contribution was decreased to 63.5% (almost by 10%).
• On the other hand, the high growth potential businesses of Reliance Industries – Reliance Jio and Reliance Retail have contributed to 33% in Q2 FY20 from earlier 23% share in FY19.
• This shows the role of Reliance Jio and Reliance Retail in the future earnings growth of the Reliance Industries in coming quarters.

Lets analyze the Q2 FY2019-20 Results of Reliance Jio and Reliance Retail in detail.

Reliance Jio Q2 FY20 Results

• Subscriber base as on 30th September 2019 of 355.2 million (40.8% YoY growth), where Net addition of 24 million in Q2 FY20 & 103 million during the previous 12 months.
• ARPU (Average Revenue per User) during Q2 FY20 was Rs.120 per subscriber per month.
• Strong customer engagement and volume growth is seen in this quarter :
  • Total wireless data traffic during the quarter of 1,202 crore GB (55.9% YoY growth)
  • Total voice traffic during the quarter of 81,262 crore minutes (52.2% YoY growth)
• Largest distribution and sales channel Pan-India and Efficient Service Network were set by Reliance Jio.
• Reliance Jio Invest Cycle
  • Investment cycle for Jio is now complete with mobility coverage nearing 99% of population. Reliance Industries Ltd has invested around Rs.3.5 Lakh Crore to create pan India digital infrastructure with largest fiber footprint.
  • Now only demand driven investment is required in coming quarters.
  • Platform set to benefit from operating leverage and superior returns

Reliance Retail Q2 FY20 Results

• EBIT margins improved 4.9% led by :
  • Customer centric approach
  • Benefit of scale and operational efficiencies in sourcing and logistics
  • Rapid expansion and deepening roots in Tier 3 and Tier 4 markets
• During Q2 FY20, Reliance Retail added 337 stores taking the total store count to 10,901 stores, with area under operations of 24.5 Mn.sq.ft
• Connectivity, consumer electronics, grocery and fashion & lifestyle are the key driving heads in Retail business. Hamley’s in India crossed a milestone of 100 stores

IPO Plans for Reliance Retail & Reliance Jio

• Reliance Industries Ltd used to announce the EBIT numbers in the declaration of quarterly results in earlier quarters and the Net Profit numbers are ever been published by the company.
• However, in Q2 FY2019-20 results, Reliance Industries Ltd have presented Net profit numbers for the Reliance Retail and Reliance Jio individually in its standalone financial results.
• This move signals Reliance Industries’s future IPO plans for Reliance Retail and Reliance Jio. Since both the business verticals have a great earnings potential being in a consumer business segment.
• In spite of the adverse effects of economic slowdown on the overall corporate earnings from previous 2-3 quarters, EBIT margins (%) and Net profit of both Reliance Retail and Reliance Jio are growing at an exceptional rate.